Nanometrics Reports Second Quarter Financial Results

Milpitas, CA | Posted on August 6th, 2010

Nanometrics Incorporated (Nasdaq: NANO), a leading provider of advanced process control metrology systems used primarily in the fabrication of semiconductors, high-brightness LEDs, data storage devices and solar photovoltaics, today announced financial results for its fiscal second quarter ended July 3, 2010.

Highlights for the second quarter include:

-- Record revenues of $50.8 million, up 37% quarter-on-quarter and 250% year-on-year;

Commenting on the second quarter results, president and chief executive officer Dr. Timothy J. Stultz said, "Our second quarter results are testimony to the progress we have made against the operational and performance objectives we are consistently driving toward; namely: strengthening the competitiveness of our products to drive key customer wins and strong gross margin performance; improving our predictability by managing to a robust and sustainable business model; and demonstrating the operational leverage, profitability and cash flow ensuing from our greater scale and improved cost structure.

"Our operations team did a terrific job executing deliveries in response to widespread strength in customer demand. This was Nanometrics' first $50 million quarter, exceeding our prior record revenue quarter by over 30%. The level of revenues reflects our strong position with numerous customers, across several geographic regions and all device types, including logic, DRAM, Flash and high-brightness LEDs. We are truly emerging as a critical supplier to most of the world's leading chip companies, enabling their aggressive performance and cost objectives by addressing tough technological challenges with best-in-class, differentiated, optical metrology systems and solutions for advanced process control.

"Our position with leading logic and memory companies, which have been sizeable customers for us since mid-2009, will enable us to continue to benefit from planned capacity expansions, ramping of the next technology nodes and fan-outs of our tool-of-record designations. Our business pipeline is also benefiting from increased spending by other major semiconductor customers as well as contributions from our newer product offerings, which address rapidly-growing segments such as high-brightness LEDs and advanced wafer scale packaging.

"Our financial results for the second quarter were notable in that we achieved our long-standing profitability targets. While this is evidence that we have a talented and motivated team that can compete, manage and execute, we are also committed to further improve and deliver financial performance consistent with being a leader in the industry."

Second Quarter 2010 Summary

Revenues were $50.8 million, up 37% from $37.2 million in the first quarter of 2010 and up 250% from $14.5 million in the second quarter of 2009. Revenues consisted of $43.4 million in product revenues, which increased 52% over the prior quarter and 450% over the year-ago period, and $7.4 million in service revenues, which decreased 14% from the prior quarter and increased 12% over the year-ago period. Gross margin of 55.1% was roughly flat compared to 55.3% in the prior quarter primarily as a result of improved product gross margin offset by a lower mix of technology upgrades, and increased compared to 41.4% in the year-ago period primarily as a result of improved product gross margin, higher overall sales volume and improved factory absorption.

Total operating expenses were $15.1 million, up 4% from $14.6 million in the first quarter of 2010 and up 21% from $12.5 million in the year-ago period. The increase over prior periods primarily reflects the higher sales volume and increased levels of variable compensation expense. The increase over the second quarter of 2009 also reflects the added expenses relating to the acquisition of the Unifire business completed in June 2009 and the impact of a reduction in the number of unpaid employee days off.

Net income was $11.6 million, or $0.51 per diluted share, compared to net income of $5.9 million, or $0.26 per diluted share, in the first quarter of 2010 and a net loss of $7.0 million, or $0.38 per diluted share, in the second quarter of 2009, which included $2.3 million in restructuring and impairment charges. Non-GAAP operating income was $15.6 million, compared to non-GAAP operating income of $8.7 million in the prior quarter and non-GAAP operating loss of $2.3 million in the year-ago period.

To view Q2 2010 tables, please visit www.nanometrics.com.

Conference Call Details

A conference call to discuss second quarter results will be held today at 5:00 p.m. EDT (2:00 p.m. PDT). To participate in the conference call, the dial-in numbers are (877) 374-4041 for domestic callers and (253) 237-1156 for international callers. A live and recorded webcast will be made available on the investor page of the Nanometrics website at www.nanometrics.com.

Use of Non-GAAP Financial Information Financial results such as non-GAAP operating income, which exclude certain expenses, charges and special items, are not in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Management uses non-GAAP operating income, which excludes non-cash expenses including stock-based compensation, depreciation and amortization, as well as asset impairments, restructuring charges and other special items, to evaluate the company's ongoing performance and cash flow from operations. The company believes the presentation of non-GAAP operating income is useful to investors for analyzing ongoing businesstrends, comparing performance to prior periods, and enhancing the investor's ability to view the company's results from management's perspective. A table presenting a reconciliation of GAAP results to non-GAAP operating income is included at the end of this press release.

Forward Looking StatementsThis press release contains forward-looking statements including, but not limited to, statements regarding Nanometrics' expected results for its most recently completed fiscal quarter, which remain subject to adjustment in connection with the preparation of Nanometrics' financial statements and periodic report on Form 10-Q for the quarter ended July 3, 2010, the continued adoption and competitiveness of its products, the expansion of the company's served markets and future revenue growth, profitability and cash flow. Although Nanometrics believes that the expectations reflected in the forward-looking statements are reasonable, actual results could differ materially from the expectations due to a variety of factors including slower-than-anticipated market adoption, changes in product mix, a contraction in current levels of industry spending and increased operating expenses. For additional information and considerations regarding the risks faced by Nanometrics, see its annual report on Form 10-K for the year ended January 2, 2010 as filed with the Securities and Exchange Commission, as well as other periodic reports filed with the SEC from time to time. Nanometrics disclaims any obligation to update information contained in any forward-looking statement.

####

About NanometricsNanometrics is a leading provider of advanced, high-performance process control metrology systems used primarily in the fabrication of semiconductors, high-brightness LEDs, data storage devices and solar photovoltaics. Nanometrics’ automated and integrated metrology systems measure critical dimensions, device structures, overlay registration, topography and various thin film properties, including film thickness as well as optical, electrical and material properties. The company’s process control solutions are deployed throughout the fabrication process, from front-end-of-line substrate manufacturing, to high-volume production of semiconductors and other devices, to advanced wafer-scale packaging applications. Nanometrics’ systems enable device manufacturers to improve yields, increase productivity and lower their manufacturing costs. The company maintains its headquarters in Milpitas, California, with sales and service offices worldwide. Nanometrics is traded on NASDAQ Global Market under the symbol NANO.